Zephyr Energy Plc (AIM: ZPHR): Decision on next steps in the Paradox imminent. Potential partnering.
• • 1H24 sales volumes in the Williston were 1,239 boe/d.• The FY24 production guidance for the Williston is unchanged at 1.1-1.3 mboe/d. This excludes >100 boe/d of natural gas liquids.
• While the cash position at the end of June 2024 was ~US$1.1 mm, the receivables were US$11.5 mm (with payables of only US$7.6 mm). The overall cash plus receivables minus payables of ~US$5 mm is well above our expectations of US$0.2 mm. This reflects the expected imminent payments of US$3.9 mm (US$3 mm from the insurer plus US$0.9 mm as revenue payments from the non-operated assets).
• In addition Zephyr will soon submit the final claims under the well control insurance policy of ~US$1.3 mm.
• Pending further visibility on next steps for well State 36-2R, we re-iterate our target price of £0.13 per share. Zephyr could decide to bring the well into production or lengthen the lateral to up to 10,000’ to further prove the hypothesis that acid treatment improves reservoir permeability from the microfractures and the matrix of the reservoir. If confirmed, this will have very positive implications for the play if acidization is sufficient to develop the reservoirs rather than having to rely on much more expensive hydraulic stimulation (fraccing).
• Zephyr is in advanced discussions with potential partners to invest either in the well or at the asset level. Announcing a partner could be a rerating event for the shares.
Revisiting our near term forecasts
We are now assuming that production in the Paradox will commence in Q1 2025 rather than in 4Q24. Production would initially be generated from the State 36-2R well (tested at >2.1 mboe/d) and the State 16-2 well (>1 mboe/d). Pending further details on the next steps for well 36-2R, we are assuming capex of only US$2 mm in 2H24. We have trimmed our WTI expectations for 2H24 to ~US$75/bbl.
Valuation
Our ReNAV is broadly unchanged at ~£0.13/sh. Fully derisking the Cane Creek contingent resources would add £0.12 per share to our Core NAV or £0.03 per share to our ReNAV.
Rose Petroleum is an oil and gas (O&G) and mining company with exploration assets and an operational crushing and flotation mill. Co.'s principal activities are the exploration and development of O&G resources together with the evaluation and acquisition of other mineral exploration targets, principally gold, silver, uranium and copper, and the development and operation of mines in Mexico. In Co.'s O&G division, the area of focus is on two unconventional oil and gas basins in the U.S.: the Uinta Basin and the Paradox Basin. In its mining division, Co. continues its milling operations through its subsidiary, Minerales VANE S.A. de C.V., which owns the SDA Mill in Mexico.
Auctus Advisors is a specialist Equity Capital Markets and Advisory business with a focus in the Energy Sector.
The partners have complementary skill sets, with decades of experience across Equity Capital Markets, Investment Banking and the Energy industry. We have worked at Société Générale, Canaccord Capital, BMO Capital Markets and Schlumberger. Most recently we have worked together for many years at GMP FirstEnergy.
Auctus has been set up at the beginning of a new decade in which we see significant opportunities in the Energy space. Globally, demand for energy is at record levels and continues to grow. Conversely, investment in traditional energy sources has been severely constrained. We believe this imbalance creates opportunities for both companies and investors.
Auctus provides Corporate Broking, Equity Research and Investment Banking services.
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